There's a 'world car' in your future

By
Douglas E. Petersen /
January 11, 1980

Until fairly recently, many of the world's major auto manufacturers based their operations on their home markets and selective export from them. Parenthetically, Ford tended to do the opposite and achieved a unique status among manufacturers. But -- in most cases -- products, jobs, and economic benefits flowed from auto production in developed countries.

Today, those traditional patterns are being upset by demands for fairer treatment by nations which feel themselves excluded from an equitable share in the benefits of modern automotive technology and use. Not all, by any means, can be classified as less-developed nations. But many of their national perceptions have found expression in new industrial policies. And, of course, these policies now are being influenced by the global shortage and increasing price of oil.

In almost every region or country where multinational enterprises such as Ford do business, their activities and operating results are being increasingly affected by industrial policy. In Brazil, industrial policy is leading the industry toward mandated production of alcohol-fueled vehicles. In Taiwan and Nigeria, it selected the entrants into those expanding markets. In the five Latin American nations that are members of the Andean Pact, a common industrial policy now is determining which manufacturers will produce a narrowed range of regional models. . . .

In Spain, where Ford has built extensive production facilities in this decade , industrial policy encourages exports but limits the Ford share of the domestic market. In other parts of Europe as well, industrial policy limits Japanese vehicle imports.

In many areas of the world, nations with established or promising auto markets have developed industrial policies that mandate foreign investment by requiring fixed levels of locally manufactured automotive parts and components as the entry price to the marketplace.

Industrial policies these days may be aimed at such national priorities as a need to create jobs, protect domestic auto producers, reduce balance of payment deficits, or generate foreign exchange through exports. Increasingly they complicate and, in some cases, limit the ability of large auto companies to produce and market their products multinationally. In so doing, they challenge the need for modern auto manufacturers to be competitive and to offset the cost of regulation in three ways: through international sourcing of parts and components, the use of advantageous economies of scale in manufacturing, and access to promising markets.

The United States is different. It has no local-content requirements for vehicles imported into this country by foreign firms. On the contrary, as part of the federal fuel-economy law, it requires that 75 percent of the parts and components, by value, be of North American origin in vehicles sold by American firms. The United States, unlike most other nations, does little to encourage automotive exports. As a matter of fact, unusually stringent US regulations make the cost of producing cars for export generally uncompetitive. At the same time, the US low-tariff policy encourages imports.While this country does control, by legislative mandate, the effects of the automotive machine upon its population, it pays scant attention -- except in times of economic crisis -- to the requirements of the industry which builds it.

Japan's industrial policy, on the other hand, strongly favors Japanese auto producers. According to the US Government's General Accounting Office, until recently Japan granted its auto manufacturers extraordinary fiscal incentives, credit availability, and export subsidies and rigidly excluded both imported cars and capital.

This probably represents the ultimate example of an industrial policy which does not recognize the concern of other countries over high import levels of a major product -- and hence the perceived exportm of domestic employment. Nor does it recognize the obligation that major companies have to particpate in economies where they sell their products in volume. It ignores the need for them to invest in facilities and thereby create local employment.

Up to now, Japan's auto producers have sought to enter and claim significant shares of almost every national market without contributing to the economic strength of those nations. That is why I believe Japanese automakers must now invest in manufacturing or assembly plants in the United States, if they are to avoid the negative impact of unfavorable American political reaction at a time this country is facing excessively high unemployment levels. While in the short term, it may take questionable economic sense for individual Japanese manufacturers to move from their efficient, low-cost island base, the long-range political and economic realities in this interdependent world argue strongly for a change is this aspect of indusrial policy.

Today, as it faces the 1980s, the global auto industry, in common with the countries in which it operates, must respond to the need to minimize waste and maximize efficiency. As part of this effort, auto manufacturers -- individually and in concert with former competitors -- are linking up across national boundaries. Others -- such as British Leyland in Britain and Chrysler in this country -- caught in the pressures of inflation, competition, and the astronomical new costs of technology and product development are turning and have turned to governments as partners, shareholders, and loan guarantors.

To remain both competitive and solvent, producers must increase commonality among components on an international scale. This can reduce redundant research, design, and engineering costs, as well as reducing tooling costs by concentrating volumes and achieving economies of scale.

We are finding that the multinational production of complementary parts and components for a common transnational product must be based on coordinated country-by- country sharing of manufacturing assignments to yield product quality, production volume, and the latest technology to all markets. To implement these delicately balanced, interdependent programs of complementation inevitably requires balancing the advantages of specific geographic locations against the economic and even socio-political risks of the choice.

The products emerging from this rational pattern of global production are what some people are calling world cars. Call them what you will, these vehicles -- even with their common or interchangeable components -- may differ in appearance, performance, and capacity even when produced by national subsidiaries of the same company. But all will be increasingly fuel-efficient and responsive to public concerns and interests of many constituencies, we believe it signals a new era in motor vehicle production, use, and appreciation.